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Income Taxes | 12 Months Ended
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Dec. 31, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes For the years ended December 31, income (loss) before income taxes consisted of the following:
In millions | 2020 |  | 2019 |  | 2018
(Loss) income before income taxes |  |  |  |  |
United States | $ | (41) |  |  | $ | (85) |  |  | $ | (79) |
Foreign | 17 |  |  | 72 |  |  | 106 |
Total (loss) income before income taxes | $ | (24) |  |  | $ | (13) |  |  | $ | 27 |
For the years ended December 31, income tax (benefit) expense consisted of the following:
In millions | 2020 |  | 2019 |  | 2018
Income tax (benefit) expense |  |  |  |  |
Current |  |  |  |  |
Federal | $ | (45) |  |  | $ | (3) |  |  | $ | (10) |
State and local | 1 |  |  | — |  |  | 6 |
Foreign | 9 |  |  | 13 |  |  | 19 |
Deferred |  |  |  |  |
Federal | 34 |  |  | (10) |  |  | (20) |
State and local | 6 |  |  | (1) |  |  | (4) |
Foreign | (158) |  |  | 8 |  |  | 6 |
Total income tax (benefit) expense | $ | (153) |  |  | $ | 7 |  |  | $ | (3) |
Effective income tax rate | 637.5 | % |  | (53.8 | %) |  | (11.1 | %)
The following table presents the principal components of the difference between the effective tax rate and the United States federal statutory income tax rate for the years ended December 31:
| 2020 |  | 2019 |  | 2018
Income tax expense at the U.S. federal tax rate | 21.0 | % |  | 21.0 | % |  | 21.0 | %
Foreign income tax differential | (20.8) | % |  | (49.2) | % |  | 2.1 | %
U.S. tax on foreign earnings | (16.7) | % |  | (8.4) | % |  | 2.0 | %
State and local income taxes | 25.0 | % |  | 58.2 | % |  | (25.0) | %
U.S. permanent book/tax differences | (4.2) | % |  | (17.0) | % |  | (2.7) | %
U.S. research and development tax credits | 25.0 | % |  | 68.5 | % |  | (29.5) | %
Change in valuation allowance | (25.0) | % |  | (49.1) | % |  | 27.7 | %
Tax impact of NOL carry-back under the CARES act. | 79.2 | % |  | — | % |  | — | %
Tax impact of equity compensation | (66.7) | % |  | (49.3) | % |  | (1.4) | %
Deferred tax impact from intra-entity IP transfer | 654.2 | % |  | — | % |  | — | %
Tax impact of U.S. Tax Reform/Transition Tax | — | % |  | — | % |  | (23.9) | %
Tax Impact of uncertain tax positions | (29.2) | % |  | (24.6) | % |  | 20.2 | %
Other, net | (4.3) | % |  | (3.9) | % |  | (1.6) | %
Effective income tax rate | 637.5 | % |  | (53.8) | % |  | (11.1) | %
The 2020 effective tax rate included $157 million of net discrete tax benefit. Discrete tax benefit of $157 million was recorded related to the transfer of foreign intellectual property as more fully described below. In addition, the Company recognized a net $13 million of tax benefit resulting from the CARES Act of 2020, which allows U.S. corporations a one-time opportunity to claim income tax refunds by allowing a 5-year NOL carry-back for taxable losses incurred in the tax year 2020. Teradata intends to carry back its 2020 NOL to claim a refund for taxes it paid in 2015, which created a one-time income tax benefit for the difference between the 35% 2015 carry back tax rate and the current 21% federal statutory rate. These tax benefits were partially offset by $9 million tax expense related to stock-based compensation and $4 million of incremental global intangible low-taxed income ("GILTI") tax. These discrete net tax benefits resulted in full-year total income tax benefit in 2020 of $153 million, on a pre-tax net loss of $24 million, causing a tax rate of 637.5%. On January 1, 2020, we transferred certain of our intellectual property among our wholly-owned subsidiaries, which resulted in the recognition of deferred tax assets of $157 million. The recognition of deferred tax assets from intra-entity transfers of intellectual property required us to make significant estimates and assumptions to determine the fair value of such intellectual property, using a discounted cash flow model. Significant assumptions in valuing the intellectual property include, but are not limited to, internal revenue and expense forecasts, and the discount rate. The sustainability of our future tax benefits is dependent upon the acceptance of these valuation estimates and assumptions by the taxing authorities. The 2019 effective tax rate was impacted by $3 million tax expense related to stock-based compensation and $3 million of incremental GILTI tax, which resulted in full-year income tax expense in 2019 of $7 million, on a pre-tax net loss of $13 million, causing a negative tax rate of 53.8%. The 2018 effective tax rates were impacted by the Tax Cuts and Jobs Act of 2017 ("Tax Act"), which was signed into law on December 22, 2017, making significant changes to the United States Internal Revenue Code. Changes include, but are not limited to: •A corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, •The transition of United States international taxation from a worldwide tax system to a modified territorial tax system, and •A one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017. On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. In accordance with SAB 118, the Company completed its analysis of the impact of the Tax Act during the fourth quarter of 2018 in accordance with its understanding of the Tax Act and guidance available as of the date of this filing. For the year ended December 31, 2018, the Company recorded a $6 million tax benefit as an adjustment to the 2017 provisional estimate in accordance with SAB 118 because of additional regulatory guidance and changes in interpretations and assumptions the Company initially made as a result of the Tax Act. Effective in 2018, the Tax Act subjects United States shareholders to a tax on GILTI earned by certain foreign subsidiaries. The Company has elected to provide for the tax expense related to GILTI in the year the tax is incurred. The Company recorded tax expense of $3 million in 2019 and $1 million in 2018 for GILTI. Deferred income tax assets and liabilities included in the balance sheets at December 31 were as follows:
In millions | 2020 |  | 2019
Deferred income tax assets |  |  |
Employee pensions and other liabilities | $ | 62 |  |  | $ | 63 |
Other balance sheet reserves and allowances | 13 |  |  | 18 |
Operating lease liabilities | 10 |  |  | 14 |
Tax loss and credit carryforwards | 105 |  |  | 80 |
Deferred revenue | 7 |  |  | 12 |
Intangibles and capitalized software | 155 |  |  | — |
Total deferred income tax assets | 352 |  |  | 187 |
Valuation allowance | (51) |  |  | (45) |
Net deferred income tax assets | 301 |  |  | 142 |
Deferred income tax liabilities |  |  |
Intangibles and capitalized software | — |  |  | 8 |
Right of use assets - operating lease | 9 |  |  | 13 |
Property and equipment | 52 |  |  | 12 |
Other | 25 |  |  | 28 |
Total deferred income tax liabilities | 86 |  |  | 61 |
Total net deferred income tax assets | $ | 215 |  |  | $ | 81 |
As of December 31, 2020, Teradata has net operating loss ("NOL") and tax credit carryforwards totaling $105 million (tax effected and before any valuation allowance offset and application of recognition criteria for uncertain tax positions). Of the total tax carryforwards, $17 million are NOL's in the United States and certain foreign jurisdictions, a small portion of which will begin to expire in 2021; $7 million are United States foreign tax credit carryforwards which expire in 2028, which have a $3 million valuation allowance offset; $16 million are federal R&D credits, which will begin to expire in 2038; and $65 million are California R&D tax credits that have an indefinite carryforward period, which have a $47 million valuation allowance offset and $17 million of FIN 48 reserve recorded. Prior to the enactment of the Tax Act, the Company had not provided for taxes on the undistributed earnings of its foreign subsidiaries as the Company either reinvested or intended to reinvest those earnings outside of the United States. Because of the Tax Act, the Company has changed its indefinite reinvestment assertion related to foreign earnings that have been taxed in the United States and now considers a majority of these earnings no longer indefinitely reinvested. Because of United States tax reform legislation, distributions of profits from non-U.S. subsidiaries are not expected to cause a significant United States tax impact in the future. However, these distributions may be subject to non-U.S. withholding taxes if profits are distributed from certain jurisdictions. The Company has recorded $2 million of deferred foreign withholding tax expense with respect to certain earnings which are not considered permanently reinvested as they would be taxable upon remittance. Deferred taxes have not been provided on earnings considered indefinitely reinvested. The Company may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The Company reflects any interest and penalties recorded in connection with its uncertain tax positions as a component of income tax expense. As of December 31, 2020, the Company’s uncertain tax positions totaled approximately $39 million, of which $18 million is reflected in the other liabilities section of the Company’s balance sheet as a non-current liability. The remaining balance of $21 million of uncertain tax positions relates to certain tax attributes both generated by the Company and acquired in various acquisitions, which are netted against the underlying deferred tax assets recorded on the balance sheet. The entire balance of $39 million in uncertain tax positions would cause a decrease in the effective income tax rate upon recognition. Teradata has recorded $1 million of interest accruals related to its uncertain tax liabilities as of December 31, 2020. Below is a roll-forward of the Company’s liability related to uncertain tax positions at December 31:
In millions | 2020 |  | 2019
Balance at January 1 | $ | 37 |  |  | $ | 34 |
Gross increases for prior period tax positions | 6 |  |  | 4 |
Gross increases for current period tax positions | 2 |  |  | 5 |
Decreases due to the lapse of applicable statute of limitations | (2) |  |  | (6) |
Decreases relating to settlements with taxing authorities | (4) |  |  | — |
Balance at December 31 | $ | 39 |  |  | $ | 37 |
The Company and its subsidiaries file income tax returns in the United States and various state jurisdictions, as well as numerous foreign jurisdictions. As of December 31, 2020, the Company has ongoing tax audits in a limited number of state and foreign jurisdictions. However, no material adjustments have been proposed or made in any of these examinations to date, which would result in any incremental income tax expense in future periods to the Company. The Company's tax returns for years 2017-2020 are still open for assessment by tax authorities in its major jurisdictions

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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